The US Dollar fell for 2 ½ days, rallied for 2 ½ days and ended a week of high political drama with its index against a basket of major currencies almost exactly unchanged. It opened on Monday at 89.75 but as stock index futures gave back a large part of the previous Friday’s gains ahead of US CPI figures on Tuesday, the USD index fell around a quarter of a point. The inflation numbers were then completely overshadowed by the firing of US Secretary of State Rex Tillerson which added to a sense of chaos in the Trump Administration and the USD fell to a low around 89.15. As the revolving door into government turned once more, former Bears Stearns economist and TV pundit Larry Kudlow was announced as the President’s Chief Economic Advisor. As he hit the financial TV studios talking up the USD, so it rallied to a best level of 89.95 before ending the week unchanged at 89.75.
One thing we can say for certain is that nothing is certain any more. As we look at calendars, diaries and schedules and try to pick out the highlights or financial markets, they can be quickly overtaken by events or one short Tweet from President Trump. The economic and political agenda is now more fluid and rapidly changing; something which itself will lead to an increase in volatility across asset classes. With this caveat in mind, the week’s main event that we thus far know of is the two-day FOMC meeting beginning on Tuesday. A new Statement, dot-points and economic projections will be available at 2pm Eastern Time on Wednesday and markets are pricing a 94.4% probability of a 25bp hike in rates; the sixth time rates have been raised since December 2015. Half an hour afterwards will be Jerome Powell’s first post-FOMC Press Conference and he’s sure to be grilled on his views on inflation, growth, tariffs and trade.
It may not be a hard and fast rule, but it’s a long-held tradition that only the Fed speaks about interest rates and only the US Treasury makes official comments on the Dollar. When asked about interest rates last week, however, Karry Kudlow said on TV, “the profit picture is good. It’s looking real good, and growth is not inflationary just let it rip for heaven's sakes. The market is going to take care of itself. The story takes care of itself let it rip. The Fed will do what it has to do, but I hope they don’t overdo it.” The USD index opens in Asia this Monday morning having ended last week at 89.75.